Just a few years ago, the only measure for a nonprofit’s effectiveness was the percent they spent on overhead expenses. If a nonprofit spent a magic 20% or less on non-program expenses they were deemed worthy of donations. This destructive way of evaluating nonprofit organizations has been losing favor over the last few years as rating agencies like Charity Navigator have recognized the need for a broader evaluation of nonprofit effectiveness. New measures have started to include outcome and impact elements.
But all of this begs the ultimate question which is how do we create a system for measuring and comparing nonprofits across the many social issues and operating models that make up the sector? Because however faulty the overhead percentage measurement was, at least it allowed a comparison of apples to apples. You could see how one nonprofit stacked up against another. But if each nonprofit organization is now creating their own theory of change, and their own outcome and impact measurements, how do we compare those to another nonprofit’s outcome and impact measures?
Enter a host of efforts to solve that very problem. One of these efforts is Markets for Good. They aim to create an infrastructure for evaluating nonprofit effectiveness based on outcomes and impact. You can watch their video explaining their efforts below, or if you are reading this in an email click here to watch the video.
And there are many other efforts to move the nonprofit sector toward measuring outcomes instead of spending practices. These include Idealistics, GiveWell, Philanthropedia among many others. But it’s not clear yet how any of these efforts will be able to analyze and compare the effectiveness of social change efforts because there are many pieces to that puzzle.
To truly be able to evaluate and compare the effectiveness of social change efforts, we have to:
- Encourage nonprofit organizations to develop a theory of change, because you can’t measure whether an organization has created change if they have no idea what they are trying to change in the first place.
- Give nonprofits resources with which to measure whether their theory of change is actually coming to fruition. Measuring outcomes and impact takes time and money.
- Separate a single nonprofit’s efforts to create change from other forces working on the same social problem so that we can understand the effectiveness of a single organization.
- Create a standardized system for comparing the ability of one nonprofit organization to create change to another’s ability to create change.
- Connect such a system for measuring nonprofit effectiveness to systems already being created for for-profit social entrepreneurs (like GIIRS) so that those with money to invest in social change efforts can compare the social return they would get in a for-profit and/or nonprofit setting.
- Communicate the results of those measures to philanthropic and social investors so they can make more informed, more results-focused investments, whether those be to nonprofit or for-profit social change organizations.
To me, comparing the ability of organizations to create social change is an enormous nut to crack. But it is an incredibly worthy endeavor. I applaud Markets for Good and the many other efforts working to create a system for understanding and comparing social change efforts. It will be fascinating to watch this space develop.
Photo Credit: KJGarbutt
The nonprofit sector often suffers from a propensity toward niceness. Indeed, according to a recent study by researchers at Stanford and two other business schools, nonprofits are perceived as “warm, generous and caring organizations, but lacking the competence to produce high-quality goods or services and run financially sound businesses.”
In other words, we think they are nice — but not competent.
But this perception stems from a reality that is often imposed on the sector. Nonprofits are encouraged to collaborate instead of compete, hold onto under-performing staff, accept martyr-like salaries, smile and nod when funders push them in tangential directions and keep quiet when government programs want the same services at a lower price.
This demand that the sector play “nice” is the result of (at least) two things. One is its focus on the social. The sector exists to address and (hopefully) solve social problems. Thus, by definition, it’s socially oriented and has a tendency toward an inclusive, consensus-based approach to doing business. Secondly, the sector is structured so that a nonprofit has many more constituents to answer to than its for-profit counterparts do.
For example, nonprofits have two customer groups, instead of the one customer for-profits have: 1)those who benefit from the services they provide (the clients) and 2)those who pay for those services (funders). And nonprofits are led by volunteer committees (board of directors) that need to be corralled. The end results is that funders, volunteers, board members, staff and clients must somehow be brought together and moved toward a common direction.
This demand to collaborate, build consensus — and play nice — probably helps explain the label of inefficiency that often is attached to the sector.
But in order to innovate and work toward real solutions, in order to get out from under consensus-based mediocrity, nonprofits need to break free from the niceness trap. They need to get meaner, uglier, messier.
In other words, they need to:
- Make an honest assessment of their core competencies, competitors and consumers so that they understand and can articulate where they fit in the marketplace — and make a market play if they can deliver a competing service more effectively. The end goal is to solve problems, not get along, right?
- Take more risks in how they deliver solutions and how they fund them. The status quo is not enough, so think big and act accordingly.
- Say no to funders who demand new programs or changes to programs that detract from the organization’s theory of change or core competencies.
- Diversify revenue streams so that they are not beholden to any one funder or funding stream.
- Demand that board members invest significant time and money in the organization, or get out.
- Fire under-performing staff. This is such a taboo in the sector, but with limited resources and mounting social problems to be addressed, do we really have time to invest in people who can’t deliver?
- Be brutally honest with funders, board members, others about the true costs of running operations effectively and don’t apologize for, or hide, administrative expenses
- Create a bold strategic plan that will drive the organization toward social impact and sustainability, not mediocrity.
Enough with the nice. If we’re really going to get things done, we have to take a stand, be bold, be honest — and do the right, hard thing.
Photo Credit: eyesplash Mikul
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